Loonie slumps, markets sinkThe Canadian dollar has now slumped from almost parity to the 95-cent area in less than two months.

The loonie, as the dollar coin is known in Canada, fell sharply today from Friday’s level amid generally soft markets and a rising U.S. currency, slipping below 95 cents U.S. before rebounding above that key level.

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“Markets are pretty weak right across the board, the U.S. dollar is higher, U.S. yields are higher,” said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

Feeding into the global angst today are fears related to China’s financial system.

For Canadian exporters, of course, a lower loonie is welcome as it makes their goods cheaper. It’s also welcome news for retailers hoping to keep shoppers from skipping across the U.S. border.

For travellers to the United States as summer vacation season gets under way, however, it’s not so welcome as they have less buying power.

Last week alone, the loonie lost more than 3 cents on the U.S. dollar’s rise and softer Canadian economic readings.

“I can’t be sure this week will be any calmer, but look for moves in the U.S. dollar to be the primary driver for the loonie for a while yet,” said Benjamin Reitzes of BMO Nesbitt Burns.

The fall in the Canadian currency today comes amid slumping markets in general, as the volatility of last week, sparked by signs of the Federal Reserve preparing to pull back from, or taper, its asset-buying stimulus program, continues.

“Unless we see a remarkable turnaround this week then we are likely to see the first negative month for European equities this year, as well as the biggest monthly decline in stocks since May 2012,” said senior analyst Michael Hewson of CMC Markets in London.

“The sharp reaction from financial markets to even the suggestion that the current Fed stimulus program may be coming to the end of its road has prompted a sharp selloff in not only stock markets globally, but bonds and commodity prices,” he added in a research note.

“This mere suggestion of stimulus withdrawal has shown how fragile the current stock market rally has been and it could be some time before markets settle down to where they should be as investors start become more discerning about company fundamentals.”

In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 fell by between 1.2 per cent and 1.7 per cent, while the S&P 500, Dow Jones industrial average and Toronto's S&P/TSX composite also tanked.

“The Shanghai sell-off and the decline in the commodity suite owing to a stronger dollar has resulted in a palpable investor reticence to indulge in risk assets in European trade today,” said senior market strategist Brenda Kelly of IG in London.

“Chinese stocks have entered bear market territory despite the intervention from the People's Bank of China to assuage the continued liquidity crunch amid renewed concerns about banking sector stability,” she said in a research note.

“With the U.S. 10-year yield rising to a high last seen in August 2011, investors are clearly still confused and uncertain on the Federal Reserve’s tapering policies.”

The global mining giant had reviewed the business – options included a sale – but said today that “the medium to long-term market fundamentals for diamonds remains robust, fuelled by growing demand for luxury goods in Asia and continuing strong demand in North America.

Among its diamond holdings are 60 per cent of the Diavik mine in Canada. It also owns Australia’s Argyle mine and 78 per cent of Zimbabwe’s Murowa project.

“We have valuable, high-quality diamonds businesses that are well positioned to capitalize on the positive market outlook,” Alan Davies, who heads up the diamonds and minerals units, said in a statement.

“After considering a number of alternative strategic ownership options it is clear the best past to generate maximum value for our shareholders is to retain these businesses.”

The potential sale of Diavik came at the same time that BHP Billiton put its diamond operations up for auction, culminating in a sale to what was then Harry Winston.

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